RESOLUTION SUPPORTING CHANGES TO THE TAXATION OF SMALL BUSINESS ENTERPRISES IN PENNSYLVANIA

WHEREAS, under current Pennsylvania law the requirements for electing and maintaining Pennsylvania S corporation status are based on the requirements contained in the Internal Revenue Code of 1954, in effect on January 1, 1983;

WHEREAS, recent federal tax law changes, namely the Small Business Job Protection Act of 1996 (P.L. 104-188), expand the number and types of entities that are eligible to be shareholders of a qualified S corporation for federal tax purposes and permits such corporations to hold 80% or more of vote and value of the stock of a subsidiary, among other changes;

WHEREAS, any S corporation that seeks to take advantage of the liberalized federal tax rules that took effect on January 1, 1997 under the Small Business Job Protection Act of 1996 may lose its S election status in Pennsylvania and thus will not receive pass through treatment of its earnings for Pennsylvania corporate net income tax purposes;

WHEREAS, limited liability companies (LLCs) are unincorporated business entities that protect individuals from personal liability for business activities and, for federal income tax purposes, LLCs are permitted to be created as pass through entities similar to partnerships;

WHEREAS, Pennsylvania does not treat LLCs as pass through entities, except for certain restricted professional organizations;

WHEREAS, the lack of conformity between Pennsylvania tax law and federal income tax law for individuals and businesses resident in Pennsylvania creates not only a higher tax climate for such persons, but also unnecessary complexity in the administration of the tax system and in compliance for individuals and businesses;

WHEREAS, there is a need for state legislation to enable Pennsylvania S corporations to benefit from new federal law changes regarding S corporations without jeopardizing their Pennsylvania S corporation status and to conform the treatment of limited liability companies in Pennsylvania to the tax treatment under federal tax law and neighboring states' tax laws;

NOW, THEREFORE, BE IT RESOLVED that the Philadelphia Bar Association supports the enactment of legislation which would conform the treatment of S corporations and limited liability companies under Pennsylvania tax law to that treatment under federal tax law;

AND BE IT FURTHER RESOLVED that the Chancellor and the Legislative Liaison Committee take all appropriate action to seek the enactment of such legislation.

PHILADELPHIA BAR ASSOCIATION
BOARD OF GOVERNORS
ADOPTED: April 24, 1997